People withdraw money from a cash machine in Nicosia, Cyprus, after the government announced a levy on savers' deposits. Photograph: Barbara Laborde/AFP/Getty

The savings of British military personnel and civil servants in Cyprus are to be protected against a bank levy being imposed as part of the island's €10bn (£8.7bn) bailout, the government has revealed.

An estimated €2bn of British deposits are held in Cyprus, including accounts for 3,000 military personnel and 250 civil servants. The chancellor, George Osborne, told The Andrew Marr Show on BBC1 on Sunday: "For people serving in our military, people serving our government out in Cyprus – because we have military bases there – we are going to compensate anyone who is affected by this bank tax. People who are doing their duty for our country in Cyprus will be protected from this Cypriot bank tax."

He said Cypriot banks based in the UK would be unaffected by the 9.9% levy on savings over €100,000. There will also be a 6.75% levy on savings below €100,000 as part of the fifth eurozone bailout, agreed early on Saturday by the European Union and the International Monetary Fund.

The news that Cypriots would have their savings raided to bail out the country's ailing banks has threatened to reignite Europe's debt and currency crisis.

Small and medium-scale savers in Greek Cyprus voiced outrage at the one-off tax on deposits. Mounting opposition led to a crucial emergency parliament session on the deal being put off until Mondayin Nicosia.

President Nicos Anastasiades, only in his first weeks in office, warned of a catastrophe if the plan was not accepted as he came under intense pressure from the eurozone and European Central Bank to ensure the levy was enacted.

Cypriot banks are to remain closed for several days following the move, unique in three years of turmoil over eurozone sovereign debt. But the knock-on effect, undermining confidence in pledges from EU leaders that ordinary savers are safe from financial chaos, fed fears of runs on banks in other vulnerable countries, such as Spain and Italy.

Cyprus is the first eurozone bailout to hit savers, breaking repeated vows from politicians, including Anastasiades recently, that such a tax would not happen.

However, it is far from the first time the public has been forced to meet banks' failings. In Ireland, the taxpayer paid for the colossal costs of bank failure. In Greece last year, private investors were forced to take "haircuts" on their investments in struggling Greek banks. The German government, driving this policy, declared repeatedly that Greece was "unique" and that this would never happen again.

Similar statements about Cyprus were issued at the weekend, despite earlier promises that all European deposits under €100,000 were safe in the banking crisis. A European commission spokesman said that the guarantee applied only to a banking collapse, not to a banking rescue, confirming that small savers' money was safer in the case of bankruptcy.

The German government and the International Monetary Fund, both drivers of the surprise depositors' tax scheme agreed early on Saturday in Brussels, voiced satisfaction. The IMF chief, Christine Lagarde, said: "The IMF has always said that we would support a solution that is sustainable, that is fully financed and that appropriately allocates the burden sharing. I believe that the agreed package meets these three objectives."

But on Sunday in Nicosia, the new Anastasiades government struggled to muster the parliamentary support required to get the bailout package through.

Martin Schulz, head of the European parliament, while agreeing that savers should bear some of the bailout costs, called for changes to exempt those with savings under €25,000.

Sharon Bowles, the Lib Dem MEP who chairs the parliament's monetary affairs committee and has been closely involved in the euro crisis, was withering. "The single market has been sold down the river for a shoddy price," she said.

"This grabbing of ordinary depositors' money is billed as a tax, so as to try and circumvent the EU's deposit guarantee laws. It robs smaller investors of the protection they were promised.

"If this were a bank they would be in court for mis-selling. The lesson here is that the EU's single market rules will be flouted when the eurozone, European Central Bank and IMF say so."

Cyprus is a major haven for the funds of wealthy Russians, with the German intelligence service recently estimating up to €20bn in Russian deposits. Unless they have been part of a recent capital flight, the Russians stand to lose fortunes under the 9.9% levy.

Anatoly Aksakov of Russia's regional banking association said confidence in the Cypriot banking sector had just been wiped out.

"The Russians have lost €3.5bn in a day," said Forbes Magazine. The IMF insisted on raiding savers' accounts to bring down the cost of the eurozone/IMF bailout to €10bn on the grounds that the €17bn needed by Cyprus would raise government debt to unsustainable levels.

The Germans supported the levy to ensure that wealthy Russians contributed and that German taxpayers were not paying out to secure Russian money. And it appears that Anastasiades insisted on spreading the levy to ordinary savers to lower the burden on the wealthy and try to prevent them fleeing Cyprus as a low-tax banking haven.